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APB Valuation Advisory #8 – Collection and Verification of Residential Data in the Sales Comparison Approach © 2016 The Appraisal Foundation

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APB Valuation Advisory #8 Voluntary Guidance on Recognized Valuation Methods and Techniques:

Collection and Verification of Residential Data in the Sales Comparison Approach

This communication is for the purpose of issuing voluntary guidance on recognized valuation methods and techniques.

Date Issued: 11/1/2016

Application: Residential Real Property, One to Four Unit

Issue: As part of its ongoing responsibilities, the Appraisal Practices Board (APB) is tasked with identifying where appraisers and appraisal users believe additional guidance would be helpful. One issue identified by the APB is the Collection and Verification of Residential Data in the Sales Comparison Approach. The purpose of this document is to provide guidance to appraisers who are collecting and verifying data to be used in the sales comparison approach for residential properties. This Valuation Advisory (Advisory) is one of two that will be issued by the APB on collecting and verifying data. The APB is in the process of developing a companion advisory on the Collection and Verification of Data used in the Sales Comparison Approach for Non-Residential Properties. Subject Matter Experts: The APB established a Subject Matter Expert (SME) Panel to assist on this topic. The APB members express their sincere gratitude to the following SMEs for volunteering their time and expertise in contributing to this document:

Roy F. Beery, III Houston, TX Joe McGrath Denver, CO Shari Green Roubinek Kalispell, MT Timothy O’Brien Bloomington, MN Brian Seemann Northridge, CA Shawn Telford Oxford, MS


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APB Liaisons: Lisa Desmarais, Shawn Wilson, and John S. Brenan, Director of Appraisal Issues.

The APB and the Foundation wish to thank the following individuals, who volunteered their time and expertise in contributing to and/or reviewing the draft of this document:

Scott Douglass Washington, DC John Fausett Denver, CO

Harold Ovsiowitz Denver, CO Ronald Prat Auburn Hills, MI

Appraisal Practices Board Members (July 2015 – June 2016)

Rick O. Baumgardner, Chair Shawn Wilson, Vice Chair

Adriana Berrocal Lisa Desmarais Ernest Durbin Jay E. Fishman Guy Griscom

Donna VanderVries

Appraisal Practices Board Members (July 2016 – June 2017)

Shawn Wilson, Chair Lisa Desmarais, Vice Chair

Adriana Berrocal Greg Franceschi Ernest Durbin

Greg Graybadger Donna VanderVries


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Collection and Verification of Residential Data in the Sales Comparison Approach

Table of Contents

SECTION I: INTRODUCTION AND OUTLINE 4

SECTION II: SCOPE OF WORK 5 2.1 Problem Identification 5

SECTION III: DATA 17 3.1 Data: Types 20

3.2 Data: Quality and Quantity 27

SECTION IV: COLLECTION 30 4.1 Data Collection: General 30

4.2 Data Collection: Comparable Sales Data 30

SECTION V: VERIFICATION 32 5.1 Client Requirements 33

5.2 Type of Data 33

5.3 Definition of Verification 33

5.4 Levels of Verification 35

5.5 Data Points 37

5.6 Who Can Verify Data 42

5.7 Sources 42

5.8 Reliability 44

5.9 Method to verify sales data 44

5.10 Documenting 45

SECTION VI: SUMMARY 47

SECTION VII: BIBLIOGRAPHY 48


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Section I: Introduction and Outline

Whether developing a single-property appraisal or utilizing a mass appraisal system to develop 1 opinions of residential property values, the collection and the verification of sales data are two 2 very important aspects of the appraisal process. Collection and verification of sales data may 3 occur during all phases of appraisal, however, it occurs most often after an acceptable scope of 4 work has been developed. While this Advisory will briefly discuss the scope of work, the main 5 focus will be on the collection and verification of sales data. Disclosing, retaining, reporting, and 6 analysis of data will not be discussed in any detail. 7

This Advisory contains: 8

• A limited discussion on scope of work 9 • An introduction to data 10 • A limited discussion on the collection of sales data 11 • A detailed discussion on the verification of sales data 12

Note: while the concepts addressed herein may apply to many different types of property, this 13 Advisory is focused on data collection and verification for residential real property (in both 14 single-property and mass appraisal). 15


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Section II: Scope of Work

The amount of data collected and how that data is verified are directly related to the scope of 16 work. Scope of work1 defines the amount and type of work necessary for data collection, 17 confirmation, verification, and analyses for each appraisal assignment. This Advisory, however, 18 will only discuss scope of work as it relates to the collection and verification of sales data. 19

The SCOPE OF WORK RULE was introduced into USPAP effective July 1, 2006, with three 20 steps: (1) problem identification; (2) scope of work acceptability; and (3) disclosure obligations. 21 Problem identification and scope of work acceptability are covered in this Advisory, while step 22 three, disclosure obligations, is not. 23

2.1 Problem Identification 24 To determine the appraisal problem to be solved for each assignment, identify the following six 25 elements: 26

• client and any other intended users; 27 • intended use of the appraiser’s opinions and conclusions; 28 • type and definition of value; 29 • effective date of the appraiser’s opinions and conclusions; 30 • the subject of the assignment and its relevant characteristics; and 31 • assignment conditions.2 32

Each of these six elements is discussed below. 33

2.1.1 Client (and any other Intended Users) 34 A client may be an individual, a group of individuals, or an entity. Since clients have different 35 appraisal problems they need solved, proper identification of the client is necessary to help direct 36 the type and amount of sales data needed, as well as the appropriate amount of verification for 37 that sales data. 38

2.1.2 Intended Use 39 An appraisal is developed for a specified intended use. Some uses require minimal amounts of 40 easily verifiable data (for an explanation of the various types of data, see Section III). Other uses 41 require substantial amounts of data, which may or may not be verifiable. For example, a 42 litigation assignment may require extensive verification of very specific sales data, while an 43 assessment office for a very large metropolitan city may only be able to randomly verify their 44 data due to the time constraints and staffing levels. 45

2.1.3 Type and Definition of Value 46 Different types of value include fair market value, market value, actual value, marketable cash 47 value, replacement value, disposition value, liquidation value, value in use, value in exchange, 48 and others. It is necessary to identify the type of value used in an assignment because each has its 49 own definition. 50

1 Page 4, lines 128-129 of the 2016-2017 Uniform Standards of Professional Appraisal Practice (USPAP) defines scope of work

as “the type and extent of research and analyses in an appraisal or appraisal review assignment.” 2 This includes extraordinary assumptions and hypothetical conditions (neither of which are covered in this advisory).


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Consider some of the differences between liquidation value and market value:3 51

Liquidation Value Market Value

Consummation of a sale will occur within a severely limited* future marketing period specified by the client.

The consummation of the sale will occur in a competitive and open market under all conditions requisite to a fair sale.

The seller is under extreme compulsion to sell.

Buyer and seller are typically motivated.

A limited marketing effort and time will be allowed for the completion of the sale.

A reasonable time is allowed for exposure in the open market.4

*Any bold emphasis in this chart was added for illustrative purposes only.

Liquidation value assumes a seller is under extreme compulsion to sell and will accept a price 52 below the typical market, while market value assumes normal market conditions and 53 motivations. Collection and verification of sales data will vary depending on which data points 54 are most relevant to the opinion of value being sought. 55

2.1.4 Effective Date of Appraiser’s Opinions and Conclusions 56 Value is not static; it continually changes as the many different market forces (see 3.1.1) interact. 57 To translate these shifting forces into an opinion of value, appraisers (in concert with the client) 58 select a specific date called the “effective date,” which is similar to taking a snapshot of the 59 market at that time. The effective date can be a retrospective date (including the distant past), a 60 current date, or a prospective date into the future. Effective Dates are important because what 61 may be relevant to a property on one specific day, may not be on any other day. 62

Because data constantly changes over time, the verification process is greatly impacted by the 63 effective date. Typically, the less current the effective date, the more the data or the data sources 64 become unavailable. As such, some appraisals can only be completed using the lowest levels of 65 verification (see 5.4) while others may require higher levels of verification. Thus, the effective 66 date impacts the quality and quantity of data available as well as how much and to what level 67 sales data can be verified. However, an older effective date in and of itself does not relieve an 68 appraiser of the obligation to perform appropriate due diligence verifying data wherever 69 possible. 70

3 Both definitions are adaptations from www.investopedia.com. 4 Not all definitions of market value require a reasonable exposure time. An example of this is Treasury Regulation §1.170A-

1(c)(2), which defines fair market value for noncash charitable contribution purposes as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.”

http://www.investopedia.com/


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2.1.5 The subject of the Assignment and its Relevant Characteristics 71 Appraisers determine which property characteristics are relevant based on the market segment 72 applicable to the assignment. The four categories of property characteristics are legal, physical, 73 locational, and economic. Examples of each include: 74

Legal: Physical: Locational: Economic: Building Codes Square Footage View Taxes Zoning Outbuildings Neighborhood HOA Dues Historic Districts Updating Street Access and Type Rental History Deed Restrictions Floorplan Proximity to Highway

Income: Photovoltaic System

It is not possible to develop an adequate scope of work without being able to distinguish relevant 75 property characteristics from those that are minimally relevant to value. Therefore, when 76 collecting and verifying sales data, it is reasonable to concentrate more on those data points 77 related to a property’s relevant property characteristics and attempt the highest levels of 78 verification (see 5.4) for those property features that relate most directly to solving the appraisal 79 problem. 80

2.1.6 Assignment Conditions 81 Assignment conditions may include: 82

• published and nationally recognized requirements and/or guidelines (Internal Revenue 83 Service, Fannie Mae, Department of Transportation, Employee Relocation Council, 84 Federal Housing Authority [FHA], International Association of Assessing Officers 85 [IAAO]) 86

• conditions specific to one client or one appraisal assignment 87 • regulations (including laws or orders that have legal force and are issued by a regulatory 88

agency) 89

Some assignment conditions may address the verification process (see TABLE 1 below). 90 Therefore, if there are assignment conditions addressing the verification process that are 91 considered applicable by the appraiser, the appraiser must comply with those assignment 92 conditions (provided compliance allows for credible assignment results). If such assignment 93 conditions are mandatory for the assignment but do not allow for credible assignment results, the 94 appraiser must decline or withdraw from the assignment as required by USPAP. 95


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TABLE 1- Examples of Specific Requirements and/or Guidelines Regarding Verification

Secondary Market Requirements and/or Guidelines (examples)

Fannie Mae Selling Guide B4-1.3-07 (Dated 04/15/2014) “Examples of verification sources include, but are not limited to, the buyer, seller, listing agent, selling agent, and closing documents in certain situations. Regardless of the source(s) used, there must be sufficient data to understand the conditions of sale, existence of financing concessions, physical characteristics of the subject, and whether it was an arms-length transaction.” Uniform Appraisal Standards for Federal Land Acquisition, Section B-4, Page 38 “Verification must be accomplished by competent and reliable personnel, and if the case goes into condemnation, the sale must be personally verified by the appraiser who will testify.” FHA Handbook 4000.1 (Effective 09/14/2015) “The appraiser must verify the characteristics of the transaction (such as sale price, date, seller concessions, conditions of sale) and the characteristics of the comparable property at the time of sale through reliable data sources. The Appraiser must verify transactional data via public records and the parties to the transaction: agents, buyers, sellers, Mortgagees, or other parties with relevant information. If the sale cannot be verified by a party to the transaction, the Appraiser may rely on public records or another verifiable impartial source. MLS records and property site visits alone are not acceptable verification sources.” Veterans Affairs Pamphlet 26-7 (Revised), Chapter 11: Appraisal Requirements, Section 7: Selection and Analysis of Comparable Sales (Effective October 1, 2008, Change 8) “A single data source is adequate if it provides quality sales data verified by closed transactions. Sales data provided by a party to the sale or financing of the subject property must be verified by a secondary data source or a party without an interest in the transaction.” Fannie Mae Form 1004/Freddie Mac Form 70, Appraiser’s Certification #10 (Effective March 2005) “I have verified, from a disinterested source, all information in this report that was provided by parties who have a financial interest in the sale or financing of the subject property.”

State Requirements and/or Guidelines (examples)

Colorado Real Estate Manual (Adopted July 11, 2003), Chapter 3, #CP-30 “An appraiser can facilitate…safeguards by adherence to the following: -Research and confirm subject property and comparable sales, including obtaining details of the contract and financing terms. -Research and confirm all relevant information about a transaction, including determination of seller paid costs….” Oregon Administrative Rules 161-025-0060(5) “All licensees must disclose in all appraisal reports whether the comparable sales analyzed in the appraisal report were or were not confirmed by a party to the transaction or an agent or representative of a party to the transaction.”

Professional Association Standards (examples)

International Association of Assessing Officers (Approved November 2010) The IAAO has a 35-page document titled the “Standard on Verification and Adjustment of Sales.” It is therefore, not reasonable to quote their lengthy guidelines for verification beyond their introductory statement of “sales should be verified to determine whether they reflect the market value of the real property transferred.”

Laws (examples)

State of Colorado Statute 38-1-118 “Any witness…may state the consideration involved in any recorded transfer of property…which was material and relevant, which was examined and utilized by him in arriving at his opinion, if he has personally examined the record and communicated directly and verified the amount of such consideration with either the buyer or seller.” “Best Evidence Rule” (the following is a general statement which indirectly addresses verification) “The best evidence rule applies when a party wants to admit as evidence the contents of a document at trial, but that the


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original document is not available. In this case, the party must provide an acceptable excuse for its absence. If the document itself is not available, and the court finds the excuse provided acceptable, then the party is allowed to use secondary evidence to prove the contents of the document and have it as admissible evidence. The best evidence rule only applies when a party seeks to prove the contents of the document sought to be admitted as evidence.”5

Specific Client Requirement (example of an Assignment Condition)

RELS, effective March 18, 2014 via an email to all appraisers “When validating the date and actual sale price of a new construction comparable sale, you may encounter instances where the public records have not yet been updated to reflect this information; especially when using recently closed sales. In these instances, an appraiser may verify this information by reviewing an executed copy of the HUD-1 Settlement Statement from the builder’s file. Similar to when public records are utilized, all comparable sales information should be verified by a minimum of two independent verification sources. All of which must be properly disclosed within the appraisal report.”

2.1.7 Conclusion 96 The six elements of problem identification summarized above are used to identify the appraisal 97 problem. Once the appraisal problem is identified, a scope of work can be developed. Scope of 98 work includes the verification process, which may vary by assignment. Not every assignment 99 will require every data point to be verified to the highest level (see 5.4). 100

To demonstrate how different appraisal problems may each require a different scope of work as 101 well as a different level of verification, refer to TABLE 2. While TABLE 2 does not address 102 verification in great detail (instead, it focuses on scope of work), it is provided to demonstrate 103 that different levels and amounts of verification are appropriate and acceptable for different 104 assignments involving the same property. When reading the following examples, keep in mind 105 that each scenario builds on the preceding scenario and is therefore presented in chronological 106 order. 107

TABLE 2: How Different Appraisal Problems Impact

Scope of Work Example 1

Client: An Estate Effective Date: Two months in the future from November 15, 2014

Client: Intended Use: Type of Value: Effective Date: Subject: Assignment Conditions:

An estate (via a personal representative of the estate). There are four siblings who are beneficiaries of the estate.

To make decisions regarding selling the residence in the immediate future.

Disposition value (with prospective value).

Two months in the future.

Conforming tract residence. Homogenous, stable subdivision.

Client restrictions (noted below) on amount and type of data to be collected.

The client lives out of state and has a limited understanding of the subject’s market area. The client knows the property is located in a very homogenous subdivision and marketing times are well over six months. The client’s goal is not to necessarily sell the residence at market value but to sell the residence in less than two months. The client requires an oral appraisal report, an indication of value range for the subject, and only a minimal amount of data and verification of the data. The appraiser concludes a credible appraisal can be produced with these assignment conditions and the client understands the limitations of the final value opinion.

5 https://www.law.cornell.edu/wex/best_evidence

https://www.law.cornell.edu/wex/best_evidence


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Some specific elements of the acceptable scope of work for this assignment include emphasis on: • data related to current active and under contract properties • data related to forecasting values into the near future • understanding how limited marketing times impact property value • examining the range of values, marketing times, and price trends in the subdivision for similar

residences And less emphasis on:

• historical sales data • a highly detailed verification process and, instead, performing a lower level of verification of MLS data

Example 2

Client: Conventional Lender Effective Date: January 20, 2015 After the four siblings receive a market value range of $139,000 to $155,000 from the appraiser, they compare this range to a $140,000 cash offer they received from a buyer who was willing to close in one week. The siblings accepted the offer because they were motivated to sell. This new buyer purchases the residence on January 15, 2015, for $140,000 cash and then decides to finance the residence with a conventional loan. In this instance, the client is the lender. For this assignment, the lender has specific requirements regarding what data points to verify and with whom the appraiser should verity those data points. The lender also has guidelines such as the minimal number of comparable sales the appraisal will report, and a time frame within which those comparables sold. The appraiser accepted the lender’s specific requirements and produced credible assignment results within these parameters. The final opinion of market value was $150,000, with an estimated exposure time of six months.

Example 3 Client: Relocation Company Effective Date: May 30, 2016 After the owner purchased the residence, he was relocated. Now, the client is the relocation company. The relocation company does not want a market value appraisal; rather, they request an “anticipated sales price” appraisal, with an estimated marketing time of no more than four months. In this instance, the appraiser is more concerned with where the market is going and less concerned with where it has been. As such, the data points verified will focus more on details that involve pending sales, active listings and available financing. The final opinion of the anticipated sales price is $148,000.

Example 4 Client: New Homeowner Effective Date: January 2, 2017 The relocation company places the residence on the market on June 15, 2016, with a list price of $148,000. The residence sells on June 29, 2016 for $146,000. On January 2, 2017, the new homeowner discovers the residence had undisclosed major sewer backup issues. The homeowner is now the client. The homeowner requests the appraiser to appraise the residence as-is (i.e., with its now-known defect) for potential litigation purposes. The data collection will now include locating sales of residences that sold with defects. The verification process is very intense and involved. The appraiser interviews sellers, buyers, listing agents, and repair contractors of the various damaged residences. The final opinion of market value is $120,000.

Example 5

Client: County Treasurer Assessment Date: January 1, 2017 The property now needs to be assessed; however, a Municipal or County Assessor is not usually a “client,” but instead the valuation specialist for each jurisdiction’s ad valorem taxation system. The client is often the government or taxing authority, or may be specifically outlined in state laws. The assessor’s appraisal information is often used by municipal or county treasurers to determine and notify property owners of property tax liability. Since this type of assignment is different than the examples listed above, further explanation and detail is being provided. The assessing office maintains a database of detailed property data, parcel and plat information, sales data, transaction information, ownership records, and other useful information. Many assessor offices employ appraisers, data collectors, analysts, administration personnel, geographical information system (GIS) technicians, and other


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professionals to gather, analyze, and process information to be entered into a computer assisted mass appraisal (CAMA) system for mass appraisal application. The level of verification by each assessor office varies. Procedures, laws, funding, processes, and other variables may influence the type and amount of data collection and verification. Verification of sales data may be limited to reviewing sales lists or conveyance documents, or can involve a comprehensive sales confirmation program including conversations with market participants, brokers, agents, developers, builders, as well as gathering information from additional professional networks. In our example, the assessor will likely review the recorded transfer or conveyance documents and process ownership changes. Some states may require a transfer declaration that will help the assessor understand the conditions and details of the sale, and in some cases indicate if any personal property was included. Declarations may be confidential or contain confidential data. Contact with property owners and market participants is not uncommon to confirm arm’s-length transactions to be used in the mass appraisal valuation system and may lead an appraiser to ignore unqualified transactions. Information is detailed and a higher level of verified data may exist. In many markets, limited data exists to value each and every type of residential property in designated regions, counties, municipalities, or areas. Information from the two sales of the subject will be included in the assessor’s database. Data collection period specifications will indicate whether or not the sales may be used for ad valorem valuation for a given tax year. In the subject property’s jurisdiction, the statutory data collection period ends on June 30, 2016, while the appraisal date for property assessment is January 1, 2017, the assessment date. Dependent on the conditions of sale or improvements or changes to the property, the sale most representative of the market on the appraisal date will generally be given more weight in the valuation model and included in time trend analyses. Often it is the sale closest to the appraisal date, which is usually the end of the data collection period. The first sale on January 15, 2015, for $140,000, falls within the data collection period, but will likely be disqualified as a sale under duress or a liquidation sale. Where limited data exists to value similar properties, the sale may need to be used for valuation with possible market adjustments for conditions of sale. In our case, higher quality data exists closer to the appraisal date with the sale of the subject on June 29, 2015, for $146,000. The transaction is arm’s length, but should be noted as a relocation sale, which may or may not impact sale price. Additional analysis will indicate if further research is necessary to determine a distinct impact based on this relocation condition. When the defect is discovered, an inspection may be performed and a cost-to-cure adjustment to the property record may be applied. State and local tax laws will impact whether a property tax adjustment will be applied for any given assessment year or prorated for part of a year based on the date of discovery. Depending upon the applicable jurisdiction, the subject would be valued as if the defect did not exist. The subject is valued for assessment based on market indicators that are combined into the valuation model. There is not enough information provided to estimate a precise value. Changes in market conditions between the date of sale and appraisal date will need to be accounted for. Based on the information given, it is likely the assessor’s actual value for 2017 will fall between $140,000 and $160,000. In the subsequent year an adjustment for the defect may be applied, likely reducing the value to between $110,000 and $130,000.


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2.2 Scope of Work Acceptability 108 In the most simple terms, “the scope of work is acceptable when it meets or exceeds: the 109 expectations of parties who are regularly intended users for similar assignments; and what an 110 appraiser’s peers’ actions would be in performing the same or a similar assignment.”6 An 111 acceptable scope of work is developed based on the identified elements (i.e., any other intended 112 users, intended use, type of value, effective date, subject of the assignment, and assignment 113 conditions), and on information discovered during the course of the assignment. As illustrated in 114 the previous examples, the scope of work may vary as the assignment elements change. This 115 includes the part of the scope of work that pertains to the verification process. 116

Because the range of possibilities for scope of work is broad and thus impractical to cover in 117 their entirety, three examples are provided: TABLE 3 provides information related to general 118 scope of work options, while TABLE 4 and TABLE 5 provide more assignment-specific scope 119 of work examples. 120

6 The Appraisal Foundation, 2016-2017 Uniform Standards of Appraisal Practice (Washington, DC: The Appraisal Foundation,

2016): 15.


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TABLE 3: Scope of Work – General Options

General Scope of Work Options to Consider This table shows a small sampling of the innumerable options an appraiser has

to create an acceptable scope of work. Not every available option is noted in this table, nor are all appropriate for every assignment.

Property Identification Options

� The appraiser visited the property on a specific date and viewed the interior and exterior of the residence. By inspecting the property, the appraiser was able to perform a more detailed identification of the property than by merely referencing information that could have been obtained from reliable sources without an inspection, such as address, location, etc.

� The appraiser never visited the property and relied on one or more of the following:

o a prior appraisal completed by the appraiser

o an appraisal completed by another appraiser

o assessor property data

o MLS listings of the property

o interviews with the homeowner

o plans and specs from the builder

o historic information from a historical society

o photo and/or video depiction of the subject property

Physical On-Site Inspection of the Property Options

� The appraiser never inspected the property.

� The appraiser inspected the property in one or more of the following ways:

o by physically measuring the property

o interior / exterior photographs

o viewing (or not viewing) a crawl space and attic

o by walking (or not walking) the entire site

o by opening (or not opening) all closed doors

o from the air only

o from the front only

Type of Data Researched Options

� The appraiser researched only sales in the immediate subdivision.

� The appraiser researched sales in the appraiser-defined neighborhood

� The appraiser checked for area land sales with one or more of the following:

o in the MLS

o directly with the county assessor office

o via a local builder

� The appraiser checked cost data with one or more of the following:


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o cost data service provider

o local contractor

Extent to Which the Data was Verified Options

� All (or some) listing and/or selling agents for the comparable sales were interviewed.

� None of the real estate agents for the comparable sales were interviewed.

� The sales data reported with the assessor office was considered reliable and not further verified.

� The sales data reported with the assessor was verified with the original documents from the clerk and recorder’s office.

TABLE 4: A Scope of Work with Lower Levels of Verification

Scope of Work Decisions for a Specific Assignment - Simple

Summary of the Appraisal Problem: Developing an Opinion of How Zoning Impacts a Property’s Value As part of a current day, market value appraisal for a federally regulated lending client seeking to make a conventional loan on the property, the appraiser is to determine the subject’s zoning designation and definition. The subject is a typical, conforming single-unit residence located on a 6,000 square foot lot in a very large, platted subdivision. The subdivision consists of all similar lot sizes and only four different models of residences, all of which were built by the same builder between one and four years ago. During a visit to the subject property, the appraiser observes the lot is similar in size, shape, terrain, and utility to all other lots in the subdivision. The residence has normal setbacks and no readily observable or disclosed adverse conditions, easements, or encroachments. The property sold a year ago for $360,000. The residence is currently listed for sale for $375,000 and is under contract for $374,000. Scope of Work:7 Minimal research is anticipated. The appraiser plans a scope of work that will include researching the zoning designation and definition for the subject. Fannie Mae requirements apply. Uniform Standards of Professional Appraisal Practice (USPAP) applies. Data Sources Utilized to Verify Zoning Conformity:

1) The plat map of the subject’s subdivision to verify site size 2) The county or municipality’s online interactive zoning map 3) The county or municipality’s land use handbook with the definition of the identified zoning designation

Verification Process: The appraiser noted every lot in the platted subdivision has an identical zoning designation of “Residential, 5,000 square foot lot size minimum.” Every lot has a residence that is similar in design, quality, size and age. Having geographic competency in the area, the appraiser has no apparent reason to suspect the subject’s zoning compliance is anything other than legal and conforming. Thus, when nothing unusual was noted, the appraiser concluded that no further verification was necessary. The appraiser went on to: (1) report the

7 Because these are very broad, generalized examples, the presented solutions are not set forth as recommendations but are

reasonable solutions for this example. The information presented may not represent the only solution and the solution provided may not be applied equally to similar situations.


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specific zoning class of the property; (2) provide a general statement as to what the zoning permitted (i.e., one-unit properties); and (3) disclose the extraordinary assumption8 made about the property being legal and conforming (and the fact that this could impact the conclusions and opinions reached).

Conclusion: The zoning was verified (see 5.4) using only the four sources listed above. The appraiser did not go on to interview land use employees, request a zoning determination letter or study the zoning manual in great depth as it would be beyond the necessary scope of work for this specific assignment. This was an acceptable level of verification for this assignment. This could be considered a lower level of verification compared to the next example.

TABLE 5: A Scope of Work with Higher Levels of Verification

Scope of Work Decisions for a Specific Assignment – More Complex

Summary of the Appraisal Problem: Developing an Opinion of How Zoning Impacts a Property’s Value As part of a current day, market value appraisal for a federally regulated lending client, the appraiser must determine if a vacant site is buildable. The vacant site is the subject property. The subject is the smallest (1.9 acre) vacant lot in a subdivision that was platted in the year 1910. The subdivision consists of 30 lots that range from 1.9 to 5 acres in size, with the average lot being 3 acres. Of the 30 lots, 28 have 80- to 90-year-old residences built on them. The only two vacant lots are the subject’s 1.9-acre lot and the contiguous 3-acre lot. The subdivision is located on the west slope of a mountain, and all of the lots vary greatly in shape, terrain and views. The subject site has the best view in the subdivision, yet it has always been a vacant lot. The lot was listed for sale one year ago for $30,000 (and did not sell). It is currently listed for sale for $1,200,000 and under contract for $1,000,000. Scope of Work: Extensive zoning research is anticipated. The appraiser anticipates the scope of work will include completing research to answer questions such as the following:

• Why has this lot remained vacant? • Does the lot have an unusual shape, or improper and/or inadequate access? • Does the terrain impact use in any way? • Has the zoning designation ever changed in the subdivision? Should it be? Can it be? • Why did the list price increase so dramatically in a short time? Are there zoning issues that need to be

resolved or that have been resolved? • Is the lot buildable according to the land use and/or building department requirements? • If this is an unbuildable lot, is assemblage with the contiguous lot a reasonable possibility to create a

buildable lot? Data Researched:

• Zoning designation and legal description for the subject’s lot and subdivision • Effective date for zoning land use regulations/restrictions for this specific property. Do they restrict

residence size? Are there driveway requirements (steepness, width, etc.)? • Proximity to utility hookups (if any) • Land use/zoning for the area • Land use assemblage possibilities, procedures and costs • Details of the sale – contract review (if available in the ordinary course of business), deed review,

contact with buyer/seller, motivations of the buyer/seller • Interview with land owners and neighboring property owners • Interview with land use department employees • Survey of lot

8 In this example, an extraordinary assumption is necessary since this particular zoning municipality requires properties to

undergo formal zoning reviews before they will guarantee a property is legal and conforming. Since this is a lengthy process and was beyond the scope of work in this example the situation warranted making this extraordinary assumption.


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• Property owner’s records and paperwork pertaining to the lot Conclusion: After some preliminary research, considerable evidence was uncovered indicating this lot was not likely to be buildable without first being assembled with the neighboring lot. The $30,000 list price was before assemblage was possible. The $1,000,000 sales contract stipulates that the lot will be assembled with the neighboring lot and that assemblage must occur before the sale is consummated. In this case, a general scope of work was planned, but the scope of work remained fluid as the appraiser performed research and analysis related to development of the assignment. This research and analysis provided answers to various appraisal problems and as a result the scope of work changed throughout the appraisal process. Note: The assessor’s office will place the sale on a nonqualified list for statistical analyses due to the multiple lot nature of the sale. The assessor should examine the details of the sale, and if it is determined to be an arm’s-length transaction, the assessor may use the sale in establishing land values for similar lots.


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Section III: Data

Data is derived from information. It can exist in any format and have any level of reliability, 121 relevance, or applicability to an appraisal assignment. Once processed, data becomes information 122 that is utilized for making decisions. Data does not, however, provide answers. Answers are 123 developed and result from having experience in dealing with data and having knowledge related 124 to a specific appraisal assignment. In other words: 125

Different data types and sources are appropriate in different situations. Because of this, it is not 126 possible to provide a list of all the data types and sources used to solve specific appraisal 127 problems. There is no “best” data or source applicable for all appraisal assignments. 128

USPAP9 recognizes this and instead of directing the appraiser to select data based on specific 129 criteria, instead it addresses how to utilize available data: 130

USPAP Rules and Standards (note: any type in bold has been added for emphasis only) Record Keeping The workfile must include…all other data,

information, and documentation necessary to support the appraiser’s opinions and conclusions…

USPAP 2016-2017, page 11, RECORD KEEPING RULE, lines

312 and 319-320

Appraisal Development

In developing a real property appraisal an appraiser must reconcile the quality and quantity of data available and analyzed within the approaches

used...

USPAP 2016-2017, page 21, Standards Rule 1-6(a), lines 635-

637

Appraisal Reporting

The content of an Appraisal Report must be consistent with the intended use of the appraisal and

at a minimum…summarize the information analyzed…

USPAP 2016-2017, page 24, Standards Rule 2-2(a)(viii), line

728

Appraisal Reporting

(Restricted)

The content of a Restricted Appraisal Report must be consistent with the intended use of the appraisal

report and, at a minimum…reference the workfile...

USPAP 2016-2017, page 26, Standards Rule 2-2(b)(viii), line 79

Appraisal Review Information that was not available to the original USPAP 2016-2017, page 31,

9 There is no precise statement that makes this declaration in USPAP 2016-2017. This is a generalization.


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appraiser in the normal course of business may also be used by the reviewer; however, the reviewer must not use such information in the reviewer’s

development of an opinion as to the quality of the work under review.

Standards Rule 3-2(g), lines 966-968

Appraisal Review (Reporting)

The content of an Appraisal Review Report must…state which information...in the work under

review that the reviewer accepted as credible…and…at a minimum, summarize any

additional information relied on…

USPAP 2016-2017, page 34, Standards Rule 3-5(i)(i-ii), lines

1072-1076

Mass Appraisal …identify the…market information required to perform an appraisal…

USPAP 2016-2017, page 43, Standards Rule 6-4(a), line 1306

USPAP describes what to do with data by using verbs such as reconcile, state, and summarize.10 131 This is an acknowledgment of the role that data plays. Appraisers do not control what data is 132 available in the market. The expectation, therefore, is not to only look for a certain type or 133 quality level of data, but to look to the market for the data it can provide and then address how 134 that data was utilized. 135

Data is, by nature, subject to insufficiencies and weaknesses. Additionally, data is fluid and on 136 some levels, open to interpretation. When an appraiser makes such interpretations, opinions 137 result. 138

Opinions can only be reached by completing an appropriate level of research and analysis and by 139 applying acceptable methodologies that produce credible assignment results.11 This is why an 140 appraisal is defined as “…an opinion of value…”12 and not as a rendering of something that can 141 be mathematically derived with raw data. 142

Because of data fluidity, it is highly probable that no two appraisal assignments (if any) would 143 have identical data availability and considerations. This can hold true even if the same appraiser 144 were appraising an identical property, under identical assignment conditions, but on two 145 consecutive days. Just having access to data, in other words, does not help define or solve an 146 appraisal problem. 147

No one data set (or source) can solve all appraisal problems, or even be correct all the time. And, 148 while the preferred appraisal practice would be to compare multiple data sources and points, this 149 is not always possible. An opinion about data is derived only after weighing the strengths and 150 weakness of available data and its sources. 151

10 It should be noted these verbs are used in very different contexts. Reconcile (along with collect, analyze, etc.) are

development/scope of work actions. State and summarize are reporting actions that apply not only to data but also to opinions and conclusions.

11 While this statement is generally referring to USPAP 2016-2017, SCOPE OF WORK RULE, Page 15, lines 427-428, it is important to note that the entire USPAP document addresses the numerous and exact Standards and Rules under which an opinion of value is to be developed.

12 The Appraisal Foundation, 2016-2017 Uniform Standards of Appraisal Practice (Washington, DC: The Appraisal Foundation, 2016): 8.


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Data quality and quantity are impacted by who is gathering the data as well as how it is obtained, 152 compiled, coded, presented, and verified. The best data comes from sources where the data is not 153 only timely, consistent, and credible, but is most closely aligned with solving the appraisal 154 problem. 155

In the end, data only becomes pertinent once it has been interpreted and deemed as relevant to 156 solving a specific appraisal problem. Finding and interpreting the correct data, therefore, is 157 subject to the development of an appropriate scope of work and then to understanding the traits 158 of the various data points. However, before applicable data can be collected and verified, it is 159 necessary to first understand what data is and how it is classified. 160

End Note: Data, Collateral Underwriter, and Other Analytical Tools 161

Frequently, market participants have specific data (solicited or unsolicited) that they ask the 162 appraiser to consider. This type of request could occur at any point in the appraisal process—163 including after the appraisal has been completed. One example of this is in relation to Fannie 164 Mae’s Collateral Underwriter® (CUTM). 165

Fannie Mae identifies CU™ as a tool for lenders that “…provides an automated appraisal risk 166 assessment to support proactive management of appraisal quality.” CU™ contains proprietary 167 analytics available only to lender clients, but not to appraisers. CU™ compares many specific 168 data points in an appraisal report (such as the above grade square footage, bedroom count, sale 169 date, sale price, etc.) to other data available to CU™, including other appraisals submitted to 170 Fannie Mae. It then reports significant deviations between its data and the appraiser’s data to the 171 lender client. 172

If the lender concludes further information is needed, appraisers may be asked to provide either 173 additional data or an explanation of why their data points differ from data that they have 174 provided previously or are different from data provided by other appraisers in that market. 175 Although Fannie Mae does not allow the lender to share screen shots or output reports from CU™ 176 with the appraiser, the lender may use CU™ to inform its conversation with the appraiser. If 177 appraisers are asked to address data that they have no access to or knowledge of, they can request 178 clarification from the lender. This is intended to discourage the lender from just sending the CU™ 179 output report to the appraiser for resolution without first considering the materiality of the 180 findings. 181

The appraiser is able to manage such requests by relying on the appraisal process. Appraisers 182 typically need to be prepared to defend their opinions and conclusions, especially in regards to 183 the specification and characteristics of their data and to how that data was utilized. The client 184 cannot dictate what data appraisers should use, or how they should use it, but they can question 185 appraisers’ data and how the data was interpreted. 186

As noted, this is just one example and CU™ is not the only analytical tool that lenders may use to 187 supplement their appraisal quality control activities. Lenders have long had access to other 188 technology and data sources to assist with their assessment of the appraisal, and many of these 189 tools are still widely used today. 190


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3.1 Data: Types 191 Appraisal data is classified by type (a type is “a category of…things having common 192 characteristics”13). Data types are both general or specific and primary or secondary and they 193 originate from different sources. Different data sources also have different characteristics. 194 TABLE 6 includes examples of data sources and some of their characteristics. 195

TABLE 6: Characteristics of Various Data Sources

Publicly available data collected by others

Assessor Records

Assessors maintain information on every property located in their county, municipality or jurisdiction. While they continually update the records and data, they are not always the first ones to receive information regarding changes made to a property. Thus, while most data is reliable, there may be a lag in database updates. Individual data points may need to be independently verified with other sources.

Published Studies

Published studies typically consist of general or macro data. They are useful in reviewing trends and providing indications of market activity.

Building Departments Depending on the level of detail maintained for every permit, building departments are often excellent sources of primary data.

Land Use Departments Local jurisdictions may provide zoning information and specific property use

restrictions including easements, dedications, buildable status, and planning data.

Federal Data

May indicate flood plains, weather patterns, potential hazards, or benefits (e.g., mining) of area.

Private Companies

May provide any level of data or verification dependent on business model. May charge a fee for information.

Subscription based data sources

Multiple Listing Services The main intent of MLS data is for real estate agents to advertise, sell, and buy properties; therefore, all information is formatted, presented, and retained in a way that best facilitates agents’ requirements or needs. Some MLS systems also facilitate appraisers’ needs. Typically, the information is valuable to appraisers and may be even more so in non-disclosure jurisdictions.

Data Aggregators

Data aggregators’ products are typically based on public records and supplemented by companies that blend and aggregate data from other sources to create a more complete data set than any individual data source can provide. Examples include blended property records based on public records data combined with primary data (taken from appraiser inspections) and then supplemented by MLS and/or other data found throughout the life of a mortgage loan.

Data Cooperatives

Data cooperatives exist in certain parts of the country and “pool” primary data source information for use by a peer group/cooperative base. When providing data to a data cooperative, appraisers must be aware of and comply with USPAP’s confidentiality provisions.

13 Oxford Dictionaries Online, s.v. “type,” accessed May 3, 2016,

http://www.oxforddictionaries.com/us/definition/american_english/type.

http://www.oxforddictionaries.com/us/definition/american_english/type


21

Construction Cost Data Cost data is available from, for example, cost service providers who collect national cost data. Additionally, cost data may be obtained from local developers, builders, and construction companies.

Other data sources

Depositions

Depositions are sworn evidence. Depositions typically have a high level of reliability based on the assumption of truth.

Leasing Information

Provides information for use in the income approach; may be used to develop local capitalization rates. May indicate if investor activity is prevalent, and may impact sale prices.

Construction Budgets Builders produce cost figures when constructing a residence. The builder or homeowner, however, might choose not to disclose such information.

Title Companies

Lenders and title companies have access to a significant amount of data relating to the transactions they are processing for their customers. This data is potentially limited because of confidentiality/privacy issues; however, it may sometimes be used as a secondary source when available.

Data compiled by the appraiser

Real Estate Agent Interviews

Local real estate agent and/or broker data is valuable in markets where an MLS is not in use, or those where sales are not commonly placed in the MLS. Local market real estate agents and brokers may have additional data that is not generally available to the public even in locations where there is an MLS. In addition, local agent or broker data can supplement the MLS or other sources, especially regarding property characteristics such as condition, quality, and deferred maintenance as well as the conditions associated with the sale.

Builders Builders may be able to provide data regarding sales transactions, costs and amenities that are not reported in MLS or other data sources. (Note: Appraisers should be diligent in analyzing the use of data obtained from builders. For instance, the appraiser should verify that sales data provided by builders are not the combination of separate purchases of the land and structure used to “create” a sale price. This process is referenced in Certification 8 on Fannie Mae’s standard 1004 forms.

Homeowner Interviews Can assist in ascertaining the condition of property, updates or remodels, sales transaction information, and motivations of sale.

Property Manager Interviews

Helpful to determine income and expense information, vacancy rates, and property condition.

Property Inspection Useful to glean detailed property information such as additions, remodels, updates, locational influences, and property characteristic (including land) influences.

196


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3.1.1 General Data 197

General data pertains to real estate values and information in general. Or, more precisely, “Data that relates to the four forces that affect real property values- social, economic, governmental, and environmental forces. This type of data is usually not specific to any particular property but is applicable in may assignments of similar types of properties. Also known as macro-level data.”14

An example of a conclusion reached using general data is: 198

“The MLS systems’ trend report indicates values for condo units in the metro area have, 199 on average, increased 10% over the last year.” 200

General data can include any combination of national, regional, or local market data. General 201 data is the result of various social, economic, governmental, and environmental forces acting 202 separately or together to influence macro real estate trends. General data is what is used to 203 produce information about real estate values on a very broad level; it is therefore not directly 204 related to any one specific property. 205

Generic sources of general data15 include: 206

Social: Economic: Governmental: Environmental: Demographics Credit availability Zoning Flood plains Crime statistics Rental rates Land-use master plans Superfund sites Population changes Property values Local annexation policies Animal migration paths Education levels Disposable income Taxation policies Terrain Unemployment rates Vacancy rates Availability of utilities Climate

Individual sources for general data16 include: 207

Social: Economic: Governmental: Environmental: US Census Bureau

Council of Economic Advisors

Department of Transportation

US Dept. of the Interior

US Dept. of Labor Marketwatch.com Department of Energy Bankrate.com

General data for all categories can also be found at www.commerce.gov. A more complete 208 directory of sources providing free general data can be found on the internet under the search 209 term “List of Federal Agencies in the United States.” Additionally, a current article listing 210 searchable general databases was published in the Summer 2015 edition of The Appraisal 211 Journal, titled “Resources for Real Estate Analysts and Valuers: Searchable Database 212 Websites.”17213

14 The Dictionary of Real Estate Appraisal, 6th Edition (Chicago: Appraisal Institute, 2015), 99. 15 Some items noted in this list may fit in more than one category. The list is for information purposes only. 16 Some sources may provide data that will fit in more than one category. This list is for information purposes only. 17 Written by Don L Swango, PhD, MAI, SRA

http://www.commerce.gov/


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3.1.2 Specific Data 214

Specific data pertains only to a specific property.18 Or, more precisely, “Details about the property being appraised, comparable sale and rental properties, and

relevant local market characteristics”19

An example of a conclusion reached using specific data is: “Additional research in the Big MLS 215 system indicates, as the result of flood damage in the subject’s building, values for units identical 216 to the subject property have declined, on average, 15% over the last year.” 217

Specific data typically only includes local data,20 and property-specific supply and demand 218 data.21 Essentially, it is any data that relates to a specific property. Specific data is used to 219 produce information about either a property’s specific market, the property itself, or specific 220 comparable sales data. 221

Examples include: 222

Market Data: Specific Property Data: Comparable Sales Data: Home ownership levels Site data Site data Absorption rates Permit data Permit data Tenant occupancy rates Property rights Property rights Available utilities Building specifications Building specifications Typical seller concessions Zoning information Zoning information Neighborhood data Cost data Cost data Flood zone information Leasing information Leasing information Sales to list price ratios Energy efficiency data Energy efficiency data Turnover rates Sales and transfer history Sales and transfer history Neighborhood boundaries Tax information Tax information Access to amenities Applicable covenants Applicable covenants

Generic sources for specific data can include: 223

Property Inspection Clerk and Recorders office

Building contractors Property managers

Homeowner Assessor’s office Physical inspection Chamber of Commerce Tenant Cost estimating manuals Title companies Plat maps Land use dept. Brokers and lenders HERS raters Flood maps MLS system Other appraisers Building departments Aerial photos TD-1000 Deeds Appraisal organizations Attorneys

Unlike general data, exact sources for specific data are not identified in this Advisory. Sources 224 for specific data are numerous and tend to vary by market. Therefore, when completing an 225 appraisal assignment, it is necessary to identify the sources of specific data available for each 226 individual market area or segment. 227

18 Real Estate Appraisal (Bellevue, WA: Rockwell Publishing Company, 2014), 293. 19 The Dictionary of Real Estate Appraisal, 6th Edition (Chicago: Appraisal Institute, 2015), 218. 20 Exceptions of course include properties that are part of the very small nationwide or worldwide market areas. 21 In Appraising Residential Properties, 4th edition, (Chicago: Appraisal Institute, 2007), page 76 identifies “property specific

supply and demand data” as a third data type beyond “general or specific.” This is also an acceptable way to identify data types.


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3.1.3 Primary Data 228

Primary data is collected directly by the analyst and is thus first-hand information (note the use 229 of the term “analyst” and not “appraiser”). Depending on the appraisal assignment, a party other 230 than the appraiser may actually be the one gathering the information. This includes the appraiser 231 or assessor office staff, research assistants, or persons providing significant appraisal assistance 232 to the appraiser. Primary data is not defined by who gathers the information, only that it is 233 gathered in its original form. 234 It is possible to gather primary data through personal inspection or by the examination of original 235 documents. Usually, an electronic copy or photocopy is still considered a document’s “original 236 form.” However, some assignment conditions will dictate that only actual, original documents be 237 represented as primary data and not photocopies or the like. 238

Examples of primary data include: 239

An inspection of the property Maintenance records for the property Plat maps for the property Covenants for the property Repair bids for the property Ownership records Land lease documents

A HERS energy report Utility billing statements Building permit applications Structural reports for the property Land use determinations Deeds for the property Construction costs for the property Surveys for the property Sales contracts Plans and specifications Insurance documents Property disclosure documents Copy of a rental license Co-op documents Affordable housing documents Property tax records Occupancy restriction

documents

3.1.4 Secondary Data 240

Secondary data is “information that is not gathered in its original form by the analyst.”24

Secondary data is information provided via another party or source and is typically not in its 241 original form. Also, it may be presented in a verified or an unverified format—depending on the 242 source. Secondary data sources can overlap with primary data sources, depending on the specific 243 information being gathered. 244

Examples of secondary data include: 245 General area zoning maps Assessor records MLS listing information Another party’s sketch of the property Private vendor databases Lender/mortgage broker Interview with homeowner Real estate agents Interview with tenant Interview with property manager Data cooperatives Software vendors

246

22 For the purposes of this Advisory, the term “original form” is interpreted as referring not to just documents, but also to the

physical inspection of a property. 23 The Dictionary of Real Estate Appraisal, 6th Edition (Chicago: Appraisal Institute, 2015), 176. 24 Ibid., 209.

Primary data is “information that is gathered in its original form22 by the analyst.”23


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3.1.5 Primary versus Secondary Data 247

Ideally, every appraisal assignment would have ample primary and secondary data. However, 248 because data is never consistently available, there is no appraisal standard specifying how much 249 or what type of data an appraiser should gather. That is why, as noted at the beginning of this 250 section, appraisers reconcile, state, summarize, and reference data. They do not seek specific, 251 pre-identified, checklist-type data required for all appraisal assignments, as it may not exist. 252 Therefore, it is necessary to understand data based on its quality and quantity. 253

Note: An example of how the availability of data can vary based on different appraisal 254 assignments is provided in TABLE 7. 255

TABLE 7: Availability of Data, Based on Different, Specific Assignments

Appraisal Assignment (1): On May 1, 2000, a 10-year-old residence is being sold via the local MLS system. This is a normal arm’s-length transaction. The client is the lender. The homeowner is cooperating and providing information to the appraiser.

Primary Data Available Secondary Data Available • Physical inspection of the residence • A copy of the sales contract • A copy of the current lease • Excel® spreadsheet showing the exact costs

the homeowner incurred while building a recent addition

• Original permits from the building department

• Assessor public records data • Current MLS listing • Interview data obtained from the listing agent,

selling agent, homeowner, and tenant

Appraisal Assignment (2): On May 1, 2015, the above residence is now 25 years old, and the entire area is destroyed by flood. The entire geography of the area has changed. A river, which used to run along the edge of the property, has now shifted and runs down the middle of the property (where the residence used to exist). Thus, the actual building site has been destroyed. The assignment involves valuing the property before the flood. The property is in litigation between the homeowner and the insurance company. The client is the insurance company. The homeowner is not cooperating and is not available to the appraiser.

Primary Data Available Secondary Data Available

• The only primary data available is a visual inspection of the currently destroyed site—this provides minimal information

• Original permits from the building department

• Assessor public records data • One MLS listing from 15 years ago • Thirty photos of the property are provided by

the insurance company—all of which are 1-year-old and prior to a recent addition made to the residence

• Information from a deposition taken of the homeowner

• Media reports, FEMA reports Appraisal Assignment (3): In May 1, 2015, the 25-year-old residence and the entire area are destroyed by a flood. The assignment involves


26

valuing the property after the flood. The property is in litigation between the homeowner and the insurance company. The client is the homeowner. The homeowner is cooperating extensively; the insurance company is not.

Primary Data Available • Excel® spreadsheet showing the exact costs

the homeowner incurred while building a recent addition

• Excel® spreadsheet showing every expense the homeowner has had over the last 25 years in regards to updating and repairing the property

• Excel® spreadsheet showing the exact costs the homeowner incurred when they built the residence

• Excel® spreadsheet from a contractor estimating the current replacement cost

• Blueprints from when the residence was built 25 years ago and for the most recent addition

• Original permits from building department

Secondary Data Available • Assessor public records data • One MLS listing from 15 years ago • An extensive number of detailed photos of the

property from one year before the flood (provided by insurance company)

• Estimated replacement cost of the residence (provided via the insurance company)

• Assessor property data • Personal interview with the contractor who

built an addition on the residence last year • Media reports, FEMA reports

Appraisal Assignment (4): On May 1, 2015, the 25-year-old residence and the entire area are destroyed by a flood. The appraiser’s client is the local municipality, who is in the process of redrawing proposed new flood maps. The assignment involves the current value of the land, based on the anticipated change to the flood maps. The homeowner is not cooperating and is not available to the appraiser.

Primary Data Available

• A visual inspection of the currently destroyed site

• Extensive rezoning documentation and information including soils reports, newly drawn flood maps, and aerial photos—all provided by the overseeing municipality

Secondary Data Available • Media reports, FEMA reports

Appraisal Assignment (5): On May 2, 2015 the joint tenants of the flood damaged residence decide to dissolve their marriage. The appraiser is hired as a joint expert. The clients are Homeowner One and Homeowner Two. The clients need two values for the property: one from before the flood and one from after the flood.

Primary Data Available • Homeowner One (who will be buying out

Homeowner Two) provides a never before disclosed document showing the residence had major (unobservable and not readily apparent) structural damage prior to the flood

Secondary Data Available • Media reports, FEMA reports

Appraisal Assignment (6):


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On May 1, 2017, a new residence was built on a site after flood damage to the site was remedied. Assignment involves valuing the property as-is and the status as of the January 1assessment date. The property needs to be assessed for tax purposes. The client is the assessor.

Primary Data Available

• Original permits from the building department • Plans and specifications provided directly to

assessor • Site inspection

Secondary Data Available • Homeowner interviewed by assessor • Media reports • Flood zone/subdivision maps

updated/reviewed • Contact with builder regarding any special

construction due to flood

3.2 Data: Quality and Quantity 256 Data quality and quantity are only partially within the appraiser’s control. While good data 257 collection methods can be implemented, they cannot impact what kind or how much data is 258 available. Thus, the quality and quantity of data is the product of characteristics such as: 259

• Availability 260 • Consistency 261 • Timeliness 262 • Reliability & Credibility 263 • Relevancy 264

3.2.1 Availability 265 Data is available for collection directly by an analyst, or by purchasing it from data vendors. 266 Vendors (i.e., data service providers) collect secondary data that is both general and specific. 267 However, because each specific source has a different amount and type of available data, a 268 common appraisal issue is the lack of all desired data. It is common for numerous data points to 269 be unavailable to an appraiser. 270

Data availability may be impacted by any number of things, some of which are outside of an 271 appraiser’s reasonable expectation for control, and some of which are not. Availability issues 272 may include: 273

• Data being available for a fee, or to members only 274 • A data source not retaining certain data 275 • A data source not collecting a certain type of data 276 • A data supplier only being open for business at certain times 277 • An online data source experiencing technical difficulties 278 • Data being difficult to download and analyze 279 • Data being stored in a disorganized format, or time-consuming to decipher 280 • A data source discarding historical data 281 • A data source inconsistently storing, retaining, or transferring information 282

One example of how the lack of data availability may impact the appraisal process is noted in non-disclosure states:25

25 Non-disclosure states include: Alaska, Idaho, Indiana, Kansas, Louisiana, Mississippi, Missouri (some counties), Montana,

New Mexico, North Dakota, South Dakota, Texas, Utah, and Wyoming.


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Special Considerations for Non-Disclosure States

While the type of data available in non-disclosure states varies, it typically excludes actual sale prices. As an example, Texas has statutes to protect the confidentiality of property sale prices.26 Not having sale prices disclosed means not having easy access to all of the data needed to properly apply the sales comparison approach to value. In situations like this, it is necessary to understand how an appraiser’s peers gather sales data, verify (or attempt to verify) data and share market information.

It is rare for all desired data to be available for an appraisal assignment. As a result, it is common 283 in scope of work disclosures and in the reconciliation process to state not only what data sources 284 were utilized but how much and what type of data was available. In other words, the appraisal 285 report often discusses the quality and the quantity of the data27 utilized in the appraisal process 286 because quality and quantity result directly from the availability of that data. 287

3.2.2 Consistency 288 Most data is not presented in a highly standardized format; therefore, disagreements and 289 inconsistencies in data are common. The reporting of specific data points can vary in consistency 290 based not only on the source, but from within the same source as well. Each data source should 291 be studied to understand how accurately, thoroughly, and consistently it presents various data 292 points. Consistent data is, in and of itself, a form of verification; consistent data eliminates doubt 293 and provides corroboration. Likely, however, the less consistent data is, the greater the level of 294 verification required to eliminate any doubt associated with that data (see Section V). 295

The overall goal, though, is not to avoid inconsistent data (as inconsistency is inevitable), but to 296 identify issues associated with inconsistency and take any reasonable and credible steps to deal 297 with it. If an assignment includes a written report, then discuss any opinions and conclusions 298 reached regarding notable inconsistencies in data (as most written appraisal reports will not 299 require a detailed discussion of all inconsistent data points). Also, consider the need to discuss 300 which levels of verification were necessary for credible assignment results when handling each 301 notable data inconsistency. 302

3.3.3 Timeliness 303 Data is updated and disseminated at different times. Some data sources update daily, while others 304 only update once a year (or less). Out-of-date data or the lag time between when an activity 305 occurs and when it is recorded can impact the conclusions and opinions reached in an appraisal 306 assignment. Important activities may have occurred one week, but then are not disclosed in the 307 accepted “go-to” data sources for weeks afterwards. If an appraisal is started after an activity 308 occurred and completed before the activity was disclosed, a difference in value opinion may 309 result (see 2.1.4). When relying heavily on published data, understand that data is usually not 310 recorded the instant something happens. Keep a working knowledge of the time gap between 311 when market activity occurs and, as applicable, when each data source records the activity. 312

26 Texas Government Code § 22.27 and § 552.148. 27 The Appraisal Foundation, 2016-2017 Uniform Standards of Appraisal Practice (Washington, DC: The Appraisal Foundation,

2016): 21.


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Some clients require the appraiser to disclose the effective date of any utilized data source. These 313 clients recognize how the timeliness of data impacts appraisal conclusions, especially when 314 verifying data as of a specific date. Thus, as necessary, disclose the effective date of data 315 sources. This will both inform the client of necessary information and limit the liability to the 316 appraiser. Yet-to-be recorded data might be relevant, but it is future information and appraisers 317 cannot be expected to have access to it. 318

3.3.4 Reliability & Credibility 319 Reliability is a trait that is paramount to some data sources, but not to all. For example, Multiple 320 Listing Services (MLS) are known for upholding and policing the impartiality and integrity of 321 their data to the best extent possible. As a whole, MLS services are typically quite reliable; 322 however, because MLS data is input by hundreds of different users, the accuracy of any one 323 given data point may be questionable at any time. 324

Reliability is determined by using the data from each source and gaining confidence in it as more 325 and more data points are verified or confirmed as being correct. Reliability has to continually be 326 evaluated over time—for all sources and for all different types of data points. Just because 327 information is published does not mean it is reliable. 328

Much like reliability is being able to depend on something, credibility is essentially being worthy 329 of belief.28 Evaluate data sources for trustworthiness. Some data sources take great care to record 330 very precise and believable date, while others are less concerned with specificity or correctness. 331

3.3.6 Relevancy 332 Relevancy is determined by the appraiser, based on scope of work and assignment conditions. 333 Since most available data is not collected with appraisers as the main intended users, 334 understanding the goals and needs of the party collecting the data helps to interpret and better 335 utilize the data. All data differs in scope and detail depending on its purposes. This includes data 336 collected for the purposes of equitably taxing properties (assessor data), for ensuring code 337 compliance (building departments), or to advertise properties for sale (MLS systems). 338

The appraiser should choose the data that is most relevant to solving a specific appraisal 339 problem, and not choose data just to have data. It should be relevant and applicable to meet the 340 needs of the appraisal assignment. 341

28 The Appraisal Foundation, 2016-2017 Uniform Standards of Appraisal Practice (Washington, DC: The Appraisal Foundation, 2016): 2.


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Section IV: Collection

In this context, collection is the process of gathering, evaluating, weighing, selecting, retaining, 342 or discarding sales data. Such collection is an adaptable process that evolves as more is learned 343 about the specific traits of various comparable sales and how they relate to the subject property, 344 and the appraisal problem. 345

4.1 Data Collection: General 346 General data collection falls into three broad categories: market data, subject property data, and 347 comparable sales data. Market and subject property data are not covered in this Advisory. 348 Valuation Advisory #4: Identifying Comparable Properties, which was issued by the Appraisal 349 Practices Board, partially covered the collection of comparable property data. Specifically, 350 Advisory #4 provided information on how to identify comparable sales based on the similarity of 351 their characteristics to a subject property and on knowing the difference between a neighborhood 352 and a market area. Thus, Advisory #4 addressed how to identify individual and specific 353 comparable sales but did not discuss the overall concepts behind sales data collection as a whole. 354

To briefly summarize Advisory #4: comparable sales are selected after identifying the problem 355 to be solved and analyzing the subject property. In other words, sales data is not collected in a 356 vacuum; it is retained or discarded based on its relevancy to the scope of work. 357

4.2 Data Collection: Comparable Sales Data 358 It is not possible to collect sales data without knowledge of the subject property’s relevant 359 property characteristics. Without distinguishing between insignificant property features (i.e., 360 those which do not contribute to marketability or value) and relevant features, there are no search 361 parameters. Search parameters are the starting point for locating comparable properties. 362

It is recommended to use search parameters to find comparable properties by first eliminating 363 any transactions that are not relevant to the assignment. The more homogenous a property is to 364 its area, the easier this is to accomplish. If a property is located in a large subdivision consisting 365 of residences that are all very similar in age and quality and on highly similar lots, it would be 366 reasonable for the data search to start (and perhaps even end) with only MLS listed sales from 367 the immediate subdivision. If, on the other hand, the property is a historic mansion with 368 nationwide notoriety, the search for sales data may be difficult and time-consuming, because 369 comparable sales may only be discovered after trying numerous and different types of data 370 searches covering a larger geographic area. 371

Data sources for sales can include: 372

• Public Records 373 • Multiple Listing Services 374 • Builder files 375 • Realtors 376 • Deed Transfers 377 • Title Companies 378 • Assessment Records 379 • Listing Records 380


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• Lenders (Fannie Mae, etc.) 381

Finding similar sales data is not just about finding specific comparables, it is also about 382 understanding how many sales there are of similar properties, how long they take to sell, how 383 many are currently listed for sale, how many offers a property typically receives before selling, 384 sale-to-list price ratios, property use, typical terms and conditions of sales, how often residences 385 resell, etc. 386

Learning how much research is needed to identify appropriate comparables informs the appraiser 387 about things such as demand and marketability of the subject property. In other words, the 388 amount and type of data available are direct indicators of the alternatives that buyers have to 389 purchasing the subject property and the relevance of any particular feature. 390

In conclusion, a collection of useable sales data is the result of starting with a broad market 391 search and narrowing. Enough sales data has been collected when a reliable pattern emerges or 392 when the comparable sales selected satisfactorily contribute to credibly solving the appraisal 393 problem. The credibility of a value opinion depends on the quality and the quantity of the data 394 available for comparable properties. 395


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Section V: Verification

The verification process helps the appraiser to decide whether or not a sales lead meets the 396 definition of a market value transaction. Verification differs from confirmation. To confirm 397 means to find information supporting what is already believed to be true. To verify means to find 398 information eliminating an existing doubt. 399

Since most assignments that utilize the sales comparison approach require the use of market 400 value sales, it is important to understand the details and purpose of the verification process. 401

USPAP makes minimal reference to verification: “…an appraiser must collect, verify, and 402 analyze all information necessary for credible assignment results.”29 USPAP does not define the 403 word verify (or verification), but it is addressed in the form of guidance: “By completing 404 research and verification steps while performing the assignment, the appraiser is expected to 405 become as knowledgeable about the subject property and its comparables as the typical market 406 participants.”30 407

The goal of verification is to establish the accuracy, correctness, or validity of something. This 408 can be done by comparing information using at least two different sources, or by gaining 409 sufficient detail about a specific piece of information from one or more sources. Verification is 410 essentially proof, corroboration, authentication, or endorsement. By verifying, doubt is reduced 411 and more credible and reliable data is established. 412

With verification, each data point should be verified until it is considered adequately confirmed 413 information, or until a point is reached where it is reasonable for the unverified data to be is 414 accepted as-is. Accepting weaknesses in data is a normal part of the appraisal process, and is 415 often the only viable solution after verification has been attempted. 416

Verification occurs in all stages of the appraisal assignment and for all different types of data. 417 However, when clients and appraisers specifically address the “verification process,” they are 418 typically referring to the process of verifying specific data points of individual comparable sales. 419

To verify comparable sales data, the following will need to be determined for each specific 420 appraisal assignment: 421

• Client requirements for verification 422 • Type of data being verified 423 • Level to which each data point will be verified 424 • Data points to verify 425 • Who will verify the data points 426 • Sources used to verify the data points 427 • Reliability of each data source 428 • Method used to verify data 429 • Documenting and recording verified and unverified data 430

29 Ibid., 20. 30 Ibid., 152.


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5.1 Client Requirements 431 While USPAP does not have specific rules or standards regarding the verification process, many 432 clients have verification guidelines. These guidelines, however, vary greatly between clients. 433 Specific examples of the differences between client guidelines are located in TABLE 1 supra. 434

5.2 Type of Data 435 Comparable properties have two different types of specific31 data: transactional data and 436 property characteristic data. Transactional and property characteristic data include seven of the 437 nine32 most commonly identified elements of comparison in real estate. These seven, which are 438 not absolute and can overlap, are listed below (in no particular order): 439

A third type of specific data33, although not used when verifying sales data specific to one 440 property, is market data. While not covered in this Advisory, it is not atypical for the scope of 441 work to include the verification of market data as well. 442

5.3 Definition of Verification 443 Verification, as a specifically defined concept, has evolved over the years in the appraisal 444 profession. As a result, it is often inconsistently defined and explained (see TABLE 8). 445

32 The nine elements are: real property rights conveyed, financing terms, conditions of sale, non-realty components, location,

physical characteristics, property use, market conditions and economic conditions. 33 When discussing “specific” versus “general” data, appraisal textbooks are specifically referring to data for the subject property

and data for the comparable sales. Thus, while there are certainly all kinds of data (i.e. a collection of sales from a market area, etc.), the data discussed as being either “specific” or “general” is meant in relation to a specific property.


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TABLE 8: VERIFICATION AS NOTED IN VARIOUS PUBLICATIONS

Real Estate Appraising, Step-by-Step by Paul G. Creteau, Castle Publishing Company (1972), page 58

“A comparable sale should never be used unless and until both the fact of the sale and the sale price are confirmed. This is usually accomplished by interviewing either the buyer or the seller, or both; or the transaction may be verified through the broker or the attorney who handled the transfer.”

Appraising Residential Properties, American Institute of Real Estate Appraisers (1988), page 300 “An appraiser…verifies data and eliminates sales that are not arm’s-length transactions if an accurate adjustment for atypical conditions of sale cannot be calculated.”

Principles of Residential Real Estate Appraising by Calvin W. Moye, National Association of Independent Fee Appraisers (2001), page 11-5 “Verifying information from alternate sources checks the validity of the data pool and inappropriate data is culled from the pool.”

The Appraisal of Real Estate, 14th Edition, Appraisal Institute (2013), page 385 “Referencing public records and data services does not verify a sales transaction. It simply confirms that a transaction was recorded.” The Dictionary of Real Estate Appraisal, 6th Edition, Appraisal Institute (2015), page 246 “In valuation practice, the process of validating or establishing the truth about information from another source, which is critical to credible assignment results. A valuer or reviewer may confirm information directly with a party knowledgeable about the property or the transaction involving the property or with another credible source to determine the reliability of that information for use in the assignment.”

How to Use the Uniform Residential Appraisal Report by Martha R. Williams and William L. Ventolo, Jr., Dearborn™ Real Estate Education (2006), page 94 “Enter the source from which you verified the accuracy of the data collected. Basic sources may include public records, the appraiser’s own files, multiple listing service, REALTORS®, and lenders.”

“Data Management and Continual Verification for Accurate Appraisal Reports,” by Donald R. Epley, The Appraisal Journal (Winter 2006), page 69 “The term ‘verify’ in the appraisal profession typically means to ensure accuracy.”

Real Estate Appraisal 7th Edition, Rockwell Publishing, Inc. (2014), page 293 “Not only does verification establish the reliability of the data, it also allows the appraiser to determine the circumstances surrounding the transaction…interviewing a party to the transaction is considered the most reliable way to verify transaction data.”

Fundamentals of Real Estate Appraisal, 8th Edition by William L. Ventolo Jr. and Martha R. Williams, Dearborn™ Real Estate Education (2001), page 131 “All sales data, however, must be verified by one or more of the principals to the transaction.”

Appraising Residences & Income Properties by Henry S. Harrison, H Squared Co. (1989), page 14-3 To verify the data, “each sale used as a comparable in an appraisal report should be personally inspected and the data confirmed with the buyer, seller or broker. The appraiser must be assured of the facts that is, that all depreciation has been considered, the measurements are correct and the reported price and terms are accurate.”

Residential Sales Comparison and Income Approaches by Mark A. Munizzo and Lisa Virruso Musial, Dearborn Financial Publishing, Inc. (2008), page 84 “To determine the value, take similar properties that have transacted at a known sales price from the market and compare them to the subject. Recall…that the sale has to be arms-length and verified as a market transaction if market value is to be sought.”

Harrison’s Illustrated Dictionary of Real Estate and Appraisal by Henry S. Harrison and Julie Harrison, H Squared Co. (2000), page 182 “Verification: The process used by appraisers to confirm the validity of data about comparable properties for use


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in the sales comparison approach of a real estate appraisal.”

The Language of Real Estate by John W. Reilly, Dearborn Real Estate Education Company (2013), page 415 “In real estate appraisal, the confirmation of price, financing terms, motivation and other details of a transaction in a market data study.”

Real Estate Appraising from A to Z, 4th Edition, by Guy Cozzi, Nemmar Real Estate Training (2003), page 82 “If you find discrepancies between two different data sources, then you should always use the public record at town hall as the most reliable resource.”

Real Estate Appraisal Principles & Procedures, 3rd Edition by Walt Huber, Levin P. Messick, and William Pivar, Educational Textbook Company, Inc. (2006), page 279 “…the appraiser must verify the data that will be used. Not only does verification establish the reliability of the data, it also allows the appraiser to determine the circumstances surrounding the transaction.”

TABLE 8 illustrates the diverse recommended methods which may be employed to verify data. 446 It also illustrates that different educators and clients place emphasis on different characteristics 447 of verification. Thus, there are many recommended ways to verify data and many different levels 448 of verification. 449

Different levels of verification are acceptable for different data points, as well as for different 450 assignment conditions. It is always up to appraisers to determine which level is appropriate for 451 each data point for their client and their assignment. Because of this, the appraiser’s goal can 452 only be to verify data to a level acceptable for a credible result; not to verify all data and 453 certainly not to verify all data to the same level or even using the same source. 454

5.4 Levels of Verification 455

The appraisal profession acknowledges there are different levels of verification but no single 456 source precisely defines such levels. After studying different client guidelines and general 457 appraisal methodologies, a pattern emerged. From that pattern, it was possible to provide an 458 example of characteristics of “different” levels of verification (see TABLE 9 below). It is 459 important to note that TABLE 9 is not meant to be absolute or even concrete; rather, it is merely 460 an illustration of what “verification” may mean in various situations. 461

TABLE 9: EXAMPLES OF DIFFERENT LEVELS OF VERIFICATION

• There is a small amount of evidence indicating the information might be true. This conclusion is based more on a hunch or a guess than on substantiated information.

• The information has an indication of being reliable. This conclusion is not based on a hunch or guess but on a specific or particular fact or reason.

• The information is reasonably trustworthy and reliable. There were numerous data points indicating the information is more likely reliable than not.

• There is a great amount of evidence, but not enough to be free of all reasonable doubts.

• There is a firm belief that the information is highly reliable with almost no


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reasonable doubt.

Not all pieces of sales data will, nor should, be verified to the same level. The level of 462 verification expected will vary by assignment type and from data point to data point. To 463 emphasize: not all data needs to be verified to a level where there is “no reasonable doubt.” 464 Every level of verification may be sufficient under specific circumstances. 465

Additionally, the level of verification for a data point may change as information is collected and 466 analyzed. Therefore, there must be sufficient reason to decide to what level each data point will 467 be verified. The reasons could be based on client expectations, scope of work requirements, or on 468 the reliability, sufficiency, or limitations of the data or the data source. Regardless, conclusions 469 and opinions should reflect market evidence. As appropriate, identifying the levels of verification 470 will provide an indication of the reliability and accuracy of decisions, opinions, and conclusions. 471 For examples of different levels of verification, refer to TABLE 10 (see below). 472

TABLE 10: Levels of Verification Verifying a Sale Price: Different Levels of Verification Based on the Assignment

Client

Requirements:34 Level35 of

Verification: Reason for this Level of Verification: Verification and Data

Sources:

ASSIGNMENT: Market value. Lender client. Fannie Mae Selling Guidelines

An average amount

-The MLS sale price was 3% under list price (which is a typical sale to list price ratio). -It is rare for agents to incorrectly record the sale price in MLS. -The MLS sale price is right in line with other similar properties. -The assessor record matches the MLS data precisely.

Listing Agent Interview, MLS36, Assessor Record

ASSIGNMENT: Market value. Litigation client. Dispute regarding recorded sale price and owner.

None An extensive amount

-The clients have a dispute regarding the sale price. -The sale price involved not only cash, but also the trade of another property. -Numerous amendments were made to the original sales contract, resulting in a two-year under contract period. -The client’s major concern is market value as it relates to the sale price. The actual sale price is a point in dispute.

MLS, Assessor Record, Copy of Clerk and Recorder Deeds, Interview with Two Homeowners, Interview with Agents Involved in Last Sale, Title Documents, Original Sales Contract, TD-1000 Information

ASSIGNMENT: Market value. Retrospective as of 30 years ago. Estate client.

None A minimal -The deed was never recorded with the Newspaper article 34 These will only list client specific guidelines above and beyond USPAP. 35 The words used to describe the levels of verification are not appraiser-defined terms; rather, they are generic words used to

illustrate differences in the effort required to verify data based on the client and the assignment type. 36 Please refer to Fannie Mae Selling Guide guideline B4-1.3-07 for their specific definitions of “verification source” and “data

source.”


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amount municipality.

stating the sale price from 30 years ago.

ASSIGNMENT: Market Value. Tax Assessor Defends Assessment Under Appeal.

IAAO Standards Local Laws, Restrictions

An extensive amount

Ad valorem property tax purposes Written Homeowner Interview, MLS Listing Data, Property Inspection, TD-1000 Information

5.5 Data Points 473 A data point is one specific piece of information (i.e., a sale price, a sale date, the amount of a 474 seller concession, etc.). Two factors generally determine how much and what type of verification 475 is performed for each data point: the amount and quality of the sales data, and the scope of work 476 of the appraisal assignment. 477

For the amount and quality of sales data, more verification is typically performed when the sales 478 data is notably diverse, sparse, or inconsistent. Also, more verification is usually performed as 479 the accuracy or truthfulness of relevant sales data becomes more questionable. On the contrary, 480 less verification is ordinarily performed when data is highly reliable, easily establishes a market 481 pattern, or is convincingly consistent with other data. 482

All decisions regarding verification must be consistent with the scope of work for the appraisal 483 assignment. For example, an appraiser performing an appraisal with an effective date 15 years in 484 the past may find limited data of any kind and, therefore, would not be able to verify much data 485 regardless of its inconsistencies and weaknesses. Alternatively, an assessor’s office may have a 486 high quantity of data but limited staff with which to make detailed, individual verifications of the 487 data points. 488

The type of data points verified and the level to which they are verified are assignment specific. 489 USPAP requires that an appraiser verify information; however, it does not impose a specific 490 procedure for verification. Additionally, the appraiser must retain information in the workfile to 491 document the verification that was performed. The appraisal report must also include a summary 492 of the information analyzed, the appraisal methods and techniques employed, and the reasoning 493 that supports the opinions and conclusions. All of this must be contained in an Appraisal Report; 494 or, in the case of a Restricted Appraisal Report, a statement of the appraisal methods and 495 techniques employed. 496

The goal is to arrive at a credible and supportable conclusion as to which data points can and will 497 need to be verified. Deciding which data points to verify to which level, however, can be 498 partially directed by clients. Client guidelines (see TABLE 1) often instruct appraisers to verify 499 very specific data points. The list below is a collection of data points for which clients may 500 require specific verification: 501

• Conditions of the sale • Existence of seller concessions • Physical characteristics of the subject property • If the sale was arm’s-length transaction • Sale price • Date of sale


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• Characteristics of the comparable sale • Details of the contract • If the transaction was market value • Financing terms • All “relevant information” about a sale • Listing history • Seller contributions • Sales data provided by a party with interest in a

sale (with a party who does not have such an interest)

• Inducements to purchase

Some clients use sweeping identifiers related to data points (“all relevant information”) and 502 others list very specific data points (“date of sale”). When addressing client specific data points, 503 remember that the primary intent of verification is to ensure accuracy of the data and to 504 satisfactorily identify sales as market value transactions. Complying with appropriate client 505 guidelines is an important part of the SCOPE OF WORK RULE. Understanding this will guide 506 decisions regarding which data points to verify. If the level of verification is acceptable to the 507 client and leads to credible assignment results, then the appraiser can use that data point to 508 support a credible conclusion. Not understanding how and when to verify sales data is 509 inappropriate; but it is acceptable to explain to clients why one or more of their guidelines 510 regarding verification could not reasonably be met. 511

Even though there are many data points associated with sales data, some of the more common 512 data points to verify include data related to the: 513

Buyer Sales Date Type of Transfer Listing History Sales Contract Seller Recording Date Prior Transfer/Sales Data Financing Physical Under Contract Date Personal Property Days on Market Concessions Characteristics

The more salient information typically verified for each data point is discussed next. 514

5.5.1 Buyer 515 It is typically necessary to research the motivations of the buyer and seller and to understand the 516 relationship between a buyer and a seller. To establish if a sale was an arm’s-length transaction 517 and reflected market value, it is imperative to know if the buyer and seller were typically 518 motivated. Also, any time a buyer and seller are related, there is a possibility the sale price does 519 not reflect market value. This type of information is usually only verifiable through direct 520 contact with a party to a transaction (realtor, attorney, buyer, etc.) and not via printed documents 521 associated with the sale. One notable exception, however, is when there is a considerable volume 522 of sales data and the sale price of the comparable falls within the range of area sale prices for that 523 specific kind of property. In such a case, a lower level of verification that leads the appraiser to 524 conclude that the sale price reflected market value may be acceptable. 525

5.5.2 Seller 526 Researching the motivations of the seller helps to establish whether the sale was an arm’s-length 527 transaction. Sellers who may have atypical motivations for selling include investors participating 528 in an IRS 1031 exchange, an estate, a relocation company, divorcing parties, government 529 agencies, religious or educational institutions, charitable organizations, financial institutions, 530 judicial sales, sheriff sales, public trustee sales, etc. 531

Drawing a conclusion about the seller type and the seller’s motivations is usually achieved by 532 communicating with a party to the transaction. If that is not feasible, it might be reasonable to 533 conclude that the seller was typically motivated by comparing the sale price to other similar sales 534


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in the market. Also, sometimes parties to the sale are not available for comment, are 535 uncooperative, or do not understand the request for information that the appraiser is seeking. 536

5.5.3 Under-Contract Date 537 A common question in regards to an under contract date is: Was the time period that elapsed 538 between the under contract date and the closing date typical for other similar properties? Under 539 contract dates are recorded most often in two places: on the sales contract and, if applicable, in 540 the property’s MLS listing history. While the sales contract is usually the superior source for the 541 under contract date, under contract dates and closing dates are two pieces of data that MLS 542 systems strictly monitor; therefore, they tend to be reliable in most MLS systems. 543

Depending on how important the under contract date is to the appraisal problem, it may be 544 necessary for the information to be verified further. For example, in most lending transactions, 545 when under contract dates for the subject property and the comparable sales occurred within a 546 similar time period (and the data is considered reliable and credible), then further verification of 547 this one data piece is typically not necessary. If, on the other hand, there are concerns that the 548 under contract date may be incorrect (i.e., the under contract date is listed on the contract as 549 occurring after the contract was signed, it is suspected of being entered incorrectly in the MLS, 550 or if it is dated), then further research and/or verification is likely. 551

5.5.4 Sale Date 552 The sale date is the day when property rights transferred from one party to another, and the sale 553 was therefore consummated. In many instances, sales dates are so accurately and reliably 554 recorded that it may be acceptable to check only one or two published data sources (recorded 555 deed, MLS listing, assessor record) to confirm the sale date. Therefore, further verification of the 556 sale date is usually only necessary if the information is in doubt and the assignment conditions 557 require it. 558

5.5.5 Recording Date 559 A recording date is the date a sales transaction was entered into public record. This is not to be 560 confused with the actual sale date, as they often differ. Most appraisal assignments do not need 561 the recording date to be specifically verified, unless the information is atypical or especially 562 pertinent to the solving the appraisal problem. Recording dates are often easy to research with 563 the entity responsible for recordation in that jurisdiction, the local assessor, or title company. If, 564 for example, the government official is known to have highly dependable recording dates, there 565 are times when it may be enough just to check one data source for this information and not to 566 verify or confirm it against another source. The appraiser should consider the verification process 567 complete if the data is sufficient enough to conclude that it is reliable and satisfies the conditions 568 of the appraisal assignment. 569

5.5.6 Personal Property 570 Sometimes a sale includes personal property that may have contributed to the sale price. In some 571 areas, nearly all sales include some type of minimally relevant personal property (e.g., a 572 refrigerator), while other areas include much more significant personal property (e.g., fully 573 furnished properties, golf club memberships). Personal property might be noted in a MLS listing, 574 on a sales contract, or in documents provided to the assessor. Personal property associated with 575 properties that were not listed for sale in a MLS may be harder to verify. The steps taken to 576 verify the existence of personal property in a sale transaction will vary by region. 577


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5.5.7 Type of Transfer 578 Deed types are most often verified using assessor records, documents filed at the clerk and 579 recorder’s office, or the sale contract. The type of deed will help appraisers determine if a sale 580 was or was not a market value transaction; however, the deed type does not in and of itself 581 indicate if a sale met the definition of market value. Generally speaking, warranty deeds are 582 typically associated with market value transactions, whereas quit-claim, sheriff, personal 583 representative, public trustee, treasurer, and beneficiary deeds may not be. Knowing the type of 584 deed is the first clue to determining whether further verification of a sale is warranted. 585

5.5.8 Prior Transfer/Sale Data 586 It is common for scope of work decisions to necessitate researching the prior sales or transfers of 587 a specific property.37 A sale occurs when money is exchanged for a property or for property 588 rights. A transfer occurs when a property (or property rights) is moved from one party to 589 another. Verifying prior transfer or sales data is not always possible by communicating with a 590 party to the most recent transfer. The information may only be available in the MLS, at the clerk 591 and recorder’s office, in the assessor data, or via a title company or an attorney. 592

5.5.9 Days on Market 593 Listing history is typically available through the MLS. 594

Public and private sources that list properties for sale (i.e., a MLS system) may keep a record of 595 how long each property has been listed for sale. However, each source likely has its own 596 definition of “days on market” and the definition of this often differs from client to client. 597

For example, note these two different definitions of days on market: 598

Fannie Mae Definitions of Days on Market (DOM) Definition for the Subject Property Definition for the Comparable Sales

“DOM is defined as the total number of continuous days from the date that a property is listed or advertised for sale through the date that it is taken off the market or contracted for sale.”38

“DOM is defined as the total number of continuous days from the date that a property is listed or advertised for sale until the date that it is taken off the market or sold.”39

If necessary, verifying the days on market may include not just reporting days on market, but 599 reconciling the differences in the definitions of days on market between a client and a source.600

37 For example, see USPAP 2016-2017, Standard Rule 1-5(b), page 21, lines 630-631. 38 Uniform Appraisal Dataset Specification, Appendix D: Field Specific Standardization Requirements Version 1.6 (Fannie Mae

and Freddie Mac: 2013), 9. 39 Ibid., 22.


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5.5.10 Listing History 601

While listing history includes a property’s days on market, it also includes any changes made to 602 the list price or the listing status, as well as the start and end date of the actual listing. Just like 603 days on market, this information is often available from the MLS. If the listing history is typical 604 for the area and type of property, then further verification with another party or source may not 605 be necessary. However, the level of verification should increase if the listing history contained 606 noted anomalies, was required by the client, or was relevant to the assignment conditions. 607

5.5.11 Financing 608 The type of financing the buyer receives can influence the sale price of the property. Therefore, 609 the appraiser should be aware of the type of financing available in the subject market area and of 610 any special or atypical financing that influences sale prices. Because special financing is tied to 611 individual transactions, discovering its existence might require a higher level of verification. 612 Access to this information may be limited; however, financing should be considered when 613 verifying transactional information, especially if atypical financing is known to exist in the 614 subject market. 615

5.5.12 Seller and Buyer Concessions40 616 A concession is something that is granted or conceded, usually in response to a demand or as part 617 of an agreement between parties. A seller concession means the seller granted something to 618 another party (typically the buyer), whereas a buyer concession means a buyer granted 619 something to another party (typically the seller). Concessions can be typical or atypical, 620 prominent or infrequent. If concessions are noted in a particular market segment, the appraiser 621 will collect data to form an opinion about the concessions (including details such as the range 622 and type of concessions, frequency, and acceptability of the concessions). 623

To research and analyze concessions, the most common sources are a sales contract and the MLS 624 (once the sale has closed). While most areas mandate real estate agents disclose seller 625 concessions in the MLS, others do not. Few MLS systems, however, require buyer concessions 626 to be disclosed (as buyer concessions are typically rare). Sales contracts are confidential 627 information and are only available in certain circumstances. Assessor’s offices also receive 628 information about concessions, though they rarely make that information available to the public. 629

If concessions are very common and occur in almost every instance, then the impact to the sale 630 of not having that concession may need to be further analyzed. Likewise, if certain types of 631 concessions rarely occur, the impact of having such a concession may need to be analyzed in 632 greater detail. Additionally, the presence or absence of concessions is data that can be used to 633 understand not just information about a particular sale but about market conditions in general. 634 For example, an increase in the amount of the seller concessions may indicate the market is 635 shifting towards a buyer’s market and the presence of buyer concessions (which are typically a 636 rare occurrence) could indicate a very strong seller’s market. Regardless, appraisers will need to 637 defend their reasons for either analyzing or not analyzing data related to concessions, when 638 concessions are noted. 639

40 This topic is covered in-depth in The Appraisal Foundation’s APB Valuation Advisory #2: Adjusting Comparable Sales for

Seller Concessions.

https://appraisalfoundation.sharefile.com/share#/view/s54c9756b83f43f5a

https://appraisalfoundation.sharefile.com/share#/view/s54c9756b83f43f5a


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5.5.13 Sales Contract Information 640 When available to the appraiser, sales contracts, counterproposals, options, and other documents 641 related to the sales agreement can reveal the terms and conditions of a sale. As applicable, the 642 appraiser should review the sales documents and conclude which terms and conditions are 643 typical or atypical. Data points which are atypical, doubtful, or unclear, may require verification. 644 Typically, this verification is done with a participant to the transaction. As noted earlier, 645 conversations with participants will often provide an indication of buyer and seller motivations 646 and will help clarify if a sale qualifies as an arm’s-length (market value) transaction. 647

5.5.14 Physical Characteristics 648 Individual physical characteristics impact value differently, depending on the subject market. 649 Thus, besides verification levels varying by assignment, they can also vary based solely on the 650 relative importance of any single physical property characteristic. Verification as it relates to 651 property characteristics is dependent on researching and learning which characteristics matter, 652 and then on the uniqueness of those characteristics. Higher levels of verification are common for 653 properties with unique characteristics or when influences are market specific. Lower levels of 654 verification may be acceptable when data is uniform or homogenous. 655

5.6 Who Can Verify Data 656 Depending upon the assignments, the data verification process could be performed by the 657 appraiser, office staff, research assistants, or even shared databases. However, some clients 658 require that only the appraiser working on the assignment can verify sales data. For example, the 659 Uniform Appraisal Standards for Federal Land Acquisitions states: “Verification must be 660 accomplished by competent and reliable personnel, and if the case goes into condemnation, the 661 sale must be personally verified by the appraiser who will testify.”41 662 And the state of Colorado statute 38-1-11842 states: “Any witness…may state the consideration 663 involved in any recorded transfer of property…which was material and relevant, which was 664 examined and utilized by him in arriving at his opinion, if he has personally examined the record 665 and communicated directly and verified the amount of such consideration with either the buyer 666 or seller.” 667

Additionally, some courts mandate not only who can verify the data, but that sales data for any 668 utilized comparable sale be verified with all parties who were involved in a sale, and the 669 appraiser must explain the conclusions they reached from those interviews. 670

In conclusion, any competent party that is acceptable to the client and to the assignment 671 conditions can perform verification. 672

5.7 Sources 673 Data verification sources can be classified as either direct or indirect sources.43 Some of these 674 sources are discussed below. 675

676

41 Uniform Appraisal Standards for Federal Land Acquisitions (Chicago: Appraisal Institute, 2000), 38. 42 Information gathered from J.D. Eaton, Real Estate Value in Litigation (Chicago: Appraisal Institute, 1995). 43 In some cases, these will overlap.


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5.7.1 Direct Verification Sources 677

Direct verification is accomplished when direct contact is made with someone who has firsthand 678 knowledge of a specific sale transaction. The most common direct verification sources are real 679 estate agents and buyers and sellers. 680

Ideally, all relevant data points associated with a specific sale transaction could be verified with 681 only one direct verification source (i.e., with one of the parties directly involved in the sale). 682 Unless unprecedented access is provided to these parties (e.g., via a deposition or formally 683 arranged interview), it is more common for only a few data points to be able to be verified 684 directly with a party to the transaction. 685

Direct interviews are the most common way to credibly conclude if a sale is a market value 686 transaction. As such, many clients request that sales data be verified with one or more parties to 687 the transaction. Usually, when clients make this request, they are implying (unless they directly 688 state otherwise) that information be gathered directly via a phone call, email, or personal 689 interview. However, because each party is free to choose to cooperate or to not cooperate with an 690 appraiser, there is no way to ensure all questions the appraiser has asked will be answered, or 691 even answered in a satisfactory manner. Even so, direct interviews are the common way to 692 credibly conclude if a sale is a market value transaction. 693

5.7.1.1 Real Estate Agent 694 Currently most real estate agents44 understand the importance of agreeing to answer appraisers’ 695 verification questions. This is likely due in part to published statements addressing the 696 relationship between appraisers and real estate agents. One such statement45 encourages real 697 estate agents to not only disclose items such as seller paid costs, but also to utilize all the fields in 698 the MLS, to quickly record sales, and to address appraisers’ questions. 699

When interviewed, most real estate agents for residential sales transactions (especially those 700 associated with lending purposes) expect appraisers’ questions to take less than five minutes to 701 answer (this conclusion was drawn after informally polling 30 agents). In that time frame, they 702 also expect the conversation to revolve around verifying data that is either entirely unpublished 703 (i.e., the motivations of, say, the seller) or data that is notably unclear in some way. Because of 704 these time constraints, it may be necessary to prioritize which data points to verify with a real 705 estate agent and which data points to verify with another source (or to leave unverified). It is 706 also reasonable to leave the verification of generally dependable recorded information (such as 707 days on market) to the end of an interview. 708

5.7.1.2 Buyer or Seller 709 Contact with a buyer or seller is always desirable but becomes more important when verifying 710 unlisted properties, real estate owned (REO) sales, or for sale by owner (FSBO) transactions. 711 Information such as marketing time, listing history, or property updates may not be obtainable 712 elsewhere. Information from a buyer or a seller may also assist in determining whether or not a 713 sale qualifies as a market value, arm’s-length transaction. 714 44 While real estate agents may understand the importance of agreeing to answer appraiser’s verification questions, it may not be

common practice in specific areas (such as in non-disclosure states) for the agents to verify information requested by the appraiser.

45 Colorado Real Estate Manual, 2015 Edition, Chapter Statement CP-30.


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5.7.2 Indirect Verification Sources 715 Indirect verification involves comparison between accumulated facts. Indirect verification 716 sources include MLS listings, other appraisers, data cooperative, closing documents, large 717 statistical data sampling, public records, etc. Also, title companies, attorneys, and internet 718 sources are a valuable resource and may also provide direct and/or indirect verification. 719 Therefore, the difference between direct and indirect verification is not exclusively related to the 720 source, but to the information being obtained. An indirect verification source, more simply, will 721 not be the original source of the data point. 722

5.8 Reliability 723 The end goal of an appraisal is to develop a credible, supportable, and reliable opinion of value. 724 The client and intended users rely on the value opinion to make decisions, which cumulatively 725 impact financial markets and economies on a mass scale. Reliable data is imperative to produce 726 credible results and to gain public trust. Verification is the one key step that most crucially 727 establishes this reliability. When data is verified, market activity is reflected as accurately as 728 possible. 729

Every step in the verification process is completed to establish reliability. Individual data sources 730 provide an indication of reliability. The continuity of various data points provides an indication 731 of reliability. Reconciling similar data points from multiple sources provides an indication of 732 reliability. 733

However, neither the abundance nor the lack of data automatically indicates reliability. For 734 example, higher levels of verification are often achievable even when there is limited data. 735 Additionally, large quantities of data, as used in mass appraisal, may be even less reliable due to 736 lower levels of verification. When there are low levels of reliability, appraisers often need to 737 communicate reasons why and address the impact this had on opinions and conclusions. The 738 level of verification itself does not indicate reliability. 739

To summarize, the reliability of sales data is the result of the verification process, not the result 740 of the data itself. Solutions and answers to appraisal problems do not occur merely because data 741 is available, they occur when the verification process has been completed. Once completed, data 742 quality, data quantity, and data sources would have been scrutinized, analyzed, and weighed—743 not just located and reported. 744

5.9 Method to Verify Sales Data 745

As stated earlier in this Advisory, verification can be done by comparing information using at least two different sources, or by gaining sufficient detail about a specific piece of information from one or more sources. Because sources, data and assignment conditions vary so greatly,

each specific step taken to verify data is assignment specific. However, an example of a verification process is included in this Advisory in TABLE 11 (see below).

TABLE 11 Example of a Verification Method

1 Identify the data point to be verified.

2 Identify a source to verify the data point.

• If the source meets the accepted assignment conditions, proceed to step 3.


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• If the source does not meet accepted assignment conditions, modify the assignment conditions with the client to include the source and proceed to step 3, or choose a different source.

3 Consult the chosen source.

4 Verify the data point with that source.

• If the source is able to verify the information (to any level), proceed to step 5. • If the source is not able to verify the information, do one of the following:

o Decide if an assumption is appropriate. Proceed to step 8. o Decide if an extraordinary assumption is necessary. Proceed to step 8. o Decide if another source should be consulted. Repeat step 3. o Decide if the data point will remain unverified. Proceed to step 8.

5 Form a final opinion about the quality and reliability of the verification source.

• If the quality of the source is deemed adequate, proceed to step 6. • If the quality of the source is deemed to have weaknesses, do one of the following:

o Decide if another source should be consulted. Repeat step 2. o Decide that even if the source has weaknesses, it will still be relied upon. Proceed to step 6.

6 Decide the level to which the data point was verified and disclose as appropriate.

7 Form an opinion as to whether that level of verification is sufficient.

• If the level of verification is sufficient, proceed to step 8. • If the level of verification is not sufficient, do one of the following:

o Decide if an assumption is appropriate. Proceed to step 8. o Decide if an extraordinary assumption is necessary. Proceed to step 8. o Begin the process over, using another verification source. Repeat step 2. o Consider if the information will remain at this level of verification. Proceed to step 8.

8 Draw a conclusion.

9 Apply the three following tests:

• Is the conclusion adequate to credibly address the verification issue? • Does the conclusion verify the data sufficiently and in such a way that it meets the needs of the

intended use and users? • Does the conclusion reflect the level of research and analysis that would be performed by the

appraiser’s peers and would satisfy the expectations of parties who are regularly intended users for similar assignments?

10 If the conclusion indicates that the data is reliable, it is appropriate to consider that the data

point has been sufficiently verified. If the conclusion does not indicate that the data is reliable, repeat the verification process until this occurs, or explain why it was within the scope of work to consider the verification process completed for this data point.

5.10 Documentation 746

To document and record information related to data verification, the appraiser should consider 747 how much of the above information needs to be directly disclosed and how much the appraiser 748 needs to know. In summary, consider some of the following sample questions: 749

• What are the client requirements for verification? o Were the guidelines reasonable and acceptable? o Was it possible to meet the guidelines? o If not, should this be addressed in the appraisal?


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o If yes, how should this be addressed in the appraisal?

• What is the type of data being verified?

• Which data points will be verified? o Was it necessary to verify “all” data points? o What are “all” data points? o Should the data points that are being verified be disclosed?

• To what level will each data point be verified? o Is it necessary to clarify exactly how each data point was verified? o Is it necessary to clarify the level to which only some data points were verified?

• Who will verify the data points? o Is it necessary to disclose who verified the data? o Is it reasonable merely to know who verified the data and not make a disclosure?

• Which sources were used to verify the data points (includes direct and indirect verification)? o Do the sources need to be explicitly identified, or will the client accept a general reference to the sources

utilized (e.g., public records)?

• How reliable is each data source? o Is it necessary to disclose how reliable each data source is? o Is it reasonable to merely know and understand the reliability of the source and not discuss it in the

appraisal?

• Which techniques were used to verify the data points? o Are the techniques utilized acceptable to the appraiser’s peers? o Are the techniques utilized acceptable to the needs of the client? o Are the techniques utilized acceptable to the assignment? o Do the techniques help support credible conclusions?

• How will the verified and unverified data be recorded? o Are there any specific requirements regarding how verified and unverified information is recorded and

classified?

In conclusion, the appraiser should document or record the appropriate sources, the efforts made 750 to verify data, what data was verified, and what was concluded from the verification process. 751

It is not within the scope of work for most residential appraisal assignments to verify every 752 single sales data point or to verify those points to one specific level. As a result, few assignments 753 require every verification step taken to be directly documented or recorded. Some data points are 754 less relevant (or not at all relevant) to an appraisal assignment. Thus, even if verified, the level 755 may be so low or the data point may be so insignificant that there is no need for that point to be 756 directly or specifically addressed in the reporting and documentation process. 757


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Section VI: Summary

Every client and assignment condition will have different requirements for how much sales data 758 is collected and how that data is verified. This can include using different sources, using different 759 levels of verification, and concentrating on the verification of different data points. The overall 760 goal for verification is to verify data to a level that is necessary for credible assignment results, 761 not to necessarily verify all data and certainly not to verify all data to the same level. Different 762 levels of verification are acceptable based on assignment conditions, availability of data, and the 763 relevance of each data point. 764


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Section VII: Bibliography

Appraisal Institute. The Appraisal of Real Estate. 14th ed. Chicago, 2013. 765

Berriman, Kelly. “Confirming and Verifying Market Data While Marketing Your Appraisal 766 Services.” American Society of Appraisers. http://www.appraisers.org/docs/default-767 source/discipline_rp/berriman-confirming-and-verifying-market-data-while-marketing-your-768 appraisal-services.pdf?sfvrsn=0. 769

Eaton, J. D. Real Estate Valuation in Litigation. 2nd ed. Chicago, IL: Appraisal Institute, 1995. 770

Epley, Donald R., PhD, MAI, SRA. “Data Management and Continual Verification for Accurate 771 Appraisal Reports.” The Appraisal Journal (Winter 2006): 62-76. 772

Fannie Mae. Selling Guide: Fannie Mae Single Family. Washington D.C., 2016. 773

Federal Housing Administration. FHA Single Family Handbook 4000.1. Washington D.C., 2015. 774

Fisher, George L. “On Sales Verification.” The Real Estate Appraiser. (January-February 1970): 775 41-43. 776

Gillespie, Edd. “To Verify or Not to Verify? There Is No Question.” Appraisal Scoop. 777 http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2011/03/to-verify-or-not-778 to-verify-there-is-no-question.html. 779

International Association of Assessing Officers. Standard on Verification and Adjustment of 780 Sales. Kansas City, 2010. 781

Swango, Dan L., PhD, MAI, SRA. “Resources for Real Estate Analysts and Valuers: Searchable 782 Database Websites.” The Appraisal Journal (Summer 2015): 237-46. 783

http://www.appraisers.org/docs/default-source/discipline_rp/berriman-confirming-and-verifying-market-data-while-marketing-your-appraisal-services.pdf?sfvrsn=0

